Taxation

[chesstrader]

Hello everybody,

As asked by Skimbleshanks, I decided to post a question as regards Taxation.

I am a french citizen willing to create a business in the UK in order to day trade actively on US stocks. I just wanted to know how it was with the British administration and what is the taxation system.

I know that taxes are 20% for profits below 500,000£
and 30% above for a business which is much more interesting than what exist in France.

I wanted to know if this also applies to a day trading activity. Is it considered a business or just an investment activity that would be liable to capital gain tax with 40% for all the gains above 29,000£.


Thanks a lot for your answers..

 

[chesstrader]

Things have changed since there are many (US) brokers that allow traders to trade over the internet...

However, I know that in the Uk the situation is completely different from the US. and even if there are traders that trade online some prime brokerage are reluctant to enable them to do that...

For the time being I work with a prop firm in the US, and from what i know they don't care about your status.

 

[RogerM]

If only the answer was as easy as the question!

For most people trading profits will be treated as capital gain and liable for capital gains tax (cgt). The first £7700 is exempt, so if you are married, you could have a joint trading account with your spouse, and make £15,400 with no liability for tax. Any gains in excess of these allowances will be added to your income from all other sources and taxed as income at your highest marginal rate.

If trading is your sole source of income, your local tax inspector may claim that you are not an investor and that you are trading as a business. This is at the discretion of the local Inspector of Taxes. If this happens, all your profits will be treated as profit from a business and taxed as income, with the usual personal allowances to offset against them. You can also offset your expenses, such as datafeeds, software, capital expenditure on your pc(s), heat, light, telephone etc. You can also make a claim that you are using part of your home as an office and offset some of these costs. But there is a nasty catch if you do this. If you claim that a room in your home is exclusively for business, you will have to pay cgt on the gain on that proportion of your home when you come to sell it. Also local authorities are trying to charge business rates on some of these arrangements. So normally it is best to show that you use the room for other family purposes - watching TV etc - and not exclusively for trading.

Finally, if profits turn out to be large, you can register as a limited company and pay corporation tax, the rates of which are lower than personal taxes. You draw a modest income from the company to keep your personal taxes (and national insurance) to a minimum. But there will still be more tax to pay at personal rates when you finally draw the money from the company, although you may choose to do this at a time that suits you best - in a bad year perhaps. This is a very complex area and you would need to take professional advice from an accountant.

 

[dsmodi]

Hey this is a great topic - glad it got started. I always wondered about the tax side of things, although I realize all comments here have to be general as Taxation issues vary from person to person.

Whilst we are on the subject, does anyone know what sort of taxation laws apply to british citizens living overseas?

 

[Henry]

Chesstrader,

I am a french citizen willing to create a business in the UK

Are you a French citizen living in France, or are you thinking of moving to the UK? If you reside in France, then any money you draw from your UK company, be it as salary or dividends, you would have to pay tax on in France.
The same is true for residents in the UK as well, but I know income tax is generally higher in France. Therefore by paying corporation tax and income tax / capital gains tax (depending on how you get the cash out), you are effectively being taxed twice on what you make.

When you add in the costs of running a UK Limited company, such as accountants fees for preparing annual accounts, returns etc, I believe it would almost certainly be more economical to trade as an individual.

This is the conclusion I have come to as a UK resident at least, and in fact am in the process of closing down one of my Limited companies which I had considered using to trade through.

H.

 

[chesstrader]

First of all thanks Henry for your answer. For the time being I still live in France but I want to relocate.. For me I am just comparing the fees and cost struture.
For teh time being I consider the UK as more competitive but I may be wrong...

Cheers

 

[chesstrader]

Thanks a lot Roger for your answer

If only the answer was as easy as the question!

For most people trading profits will be treated as capital gain and liable for capital gains tax (cgt). The first £7700 is exempt, so if you are married, you could have a joint trading account with your spouse, and make £15,400 with no liability for tax. Any gains in excess of these allowances will be added to your income from all other sources and taxed as income at your highest marginal rate.

If trading is your sole source of income, your local tax inspector may claim that you are not an investor and that you are trading as a business. This is at the discretion of the local Inspector of Taxes. If this happens, all your profits will be treated as profit from a business and taxed as income, with the usual personal allowances to offset against them. You can also offset your expenses, such as datafeeds, software, capital expenditure on your pc(s), heat, light, telephone etc. You can also make a claim that you are using part of your home as an office and offset some of these costs. But there is a nasty catch if you do this. If you claim that a room in your home is exclusively for business, you will have to pay cgt on the gain on that proportion of your home when you come to sell it. Also local authorities are trying to charge business rates on some of these arrangements. So normally it is best to show that you use the room for other family purposes - watching TV etc - and not exclusively for trading.

Finally, if profits turn out to be large, you can register as a limited company and pay corporation tax, the rates of which are lower than personal taxes. You draw a modest income from the company to keep your personal taxes (and national insurance) to a minimum. But there will still be more tax to pay at personal rates when you finally draw the money from the company, although you may choose to do this at a time that suits you best - in a bad year perhaps. This is a very complex area and you would need to take professional advice from an accountant.

 

[kinglatfan]

I think it very important to check the residency rules.

If you spend more than 183 days in any tax year in either England or France then you will be taxed in that country.

If you think there will be a lot less tax to pay if you live in France but trade through a UK broker you may have problems.

Kinglatfan